Your home is worth protecting with good homeowner’s insurance. However, complicated home insurance policies can make it hard to understand what your insurer actually covers. Here’s what you need to know about understanding your insurance policy and what to look for when filing a claim.
How to Read an Insurance Policy
When you open up your home insurance policy, you’re presented with a lot of information all at once. While the layout of an insurance policy may change, it should always include the same information. You should expect to see the following items:
- Insurance company: The full legal name of your insurance company.
- Named insured: The policyholder, usually yourself.
- Policyholder address: The location of your home.
- Policy number: A unique identification number that allows your insurer to identify the policy and fulfill claims.
- Policy period: When your coverage begins and ends.
- Coverages: What is covered by your contract.
- Replacement cost value (RVC) or actual cash value (ACV): How the insurer determines the amount to compensate you for claimed repairs or items.
- Limits: The maximum amount to be paid by the insurer in case of a claim.
- Deductibles: How much you are responsible for paying before the insurance coverage applies.
- Exclusions: Anything that is explicitly not covered by the policy. This section is most common in open perils policy, but it may also be included in others.
- Total premium: What you will pay for the policy before any deductibles.
- Endorsements/riders: Any additional features or changes to the basic policy.
All of this information is important, but not all of it is immediately relevant in an emergency. If you need to file an insurance claim in Texas or Florida, the details that matter most are coverage, limits and deductibles, RCV/ACV, and the endorsements or riders on the contract.
Types of Coverage
There are six main types of coverage that may be included in a standard home insurance policy:
- Dwelling: The building in which you live.
- Other structures: Other buildings on the property, such as detached garages and sheds.
- Personal property: The items you own within your dwelling or other structures.
- Loss of use: Coverage for the time you can’t live in your home due to damage and repairs; the contract will cover the time you spend in a hotel that offers an equivalent quality of life.
- Liability: Coverage for any injuries you cause or that occur on your property.
- Medical: Coverage for medical expenses that were caused by your property in addition to liability.
Limits and Deductibles
Each type of coverage will have a specific limit and deductible attached to it. Higher limits typically lead to more expensive premiums because the insurer is taking on the risk of covering more valuable property. Meanwhile, higher deductibles will make your policy less costly upfront because you agree to pay more before the insurance coverage kicks in.
The exact limits and deductibles for each coverage will depend on your policy. Most commonly, the other structures coverage limit is about 10% of your dwelling coverage limit, and personal property coverage is limited to 1% of your overall dwelling coverage. Deductibles are more flexible and may be increased or decreased according to the financial risk you’re willing to take.
Replacement Cost Value vs. Actual Cash Value
Your insurance may compensate you for your property in two ways: replacement cost and actual cash value. The cash value is the amount an item would be worth if you sold it, depreciated from the amount it originally cost. For example, a two-year-old laptop would be covered at the amount it would be worth on the resale market, not the amount you paid for it.
On the other hand, if your insurer covers replacement cost value, it will cover the amount it takes to actually replace the item without depreciation. For example, it would cover the cost of getting a laptop with equivalent specifications new instead of giving you the resale value and forcing you to find the item used.
Endorsements and Riders
You may have added extra coverage to your policy. This additional coverage will be found at the bottom of the policy. Common riders and endorsements to look for include:
- Water backups: If water backs up through your plumbing from the sewer or a septic tank, you’re left with a mess. While flooding often isn’t covered in basic insurance policies, you can get a rider that covers the damage caused by these backups and other flooding, such as sump pump failures or leaky pipes.
- Sinkhole, earthquake, or earth movement: Even if your insurer excludes earth movement from your coverage, you can usually get a rider to cover it. This ensures that your home is protected from these natural disasters, which is particularly important in places like Florida, prone to sinkholes, or Texas, where earthquakes are becoming more common.
- Windstorm: If you live where windstorms, hurricanes, or tornados are particularly common, your insurer may exclude wind damage from your policy. If so, you can request a specific rider to cover this kind of damage.
- Service line: If service lines like your water main, sewer, gas, or electrical cable are cut, you may be on the hook for replacing them. The right rider will ensure you don’t have to pay to repair public or private utilities if they get damaged.
- Equipment breakdown: Appliances like boilers, water heaters, and HVAC units are expensive, and mechanical failures aren’t usually covered by standard insurance. You can get a rider to extend coverage to avoid the risk of having to pay in full for a new appliance after a failure.
- Extended replacement costs: If you want the most coverage possible for your dwelling, get an extended replacement costs rider. This gives you access to up to 125% to 150% of the amount it would cost to rebuild your home from scratch, allowing you to make all the repairs necessary without risking the need to tear down the house and start from scratch.
Get Help Understanding Your Insurance Policy With the Professional Law Group
If you don’t understand your insurance policy, or if your insurer has underpaid or denied your claim and you don’t understand why it’s time to get help. At the Professional Law Group, we specialize in helping our clients get the coverage they’re owed after filing an insurance claim. Get in touch to learn how we can help you understand what’s covered by your policy and fight back if your insurer isn’t fulfilling the terms of your contract.
